Idaho clings to status quo on retiree benefits

BOISE — The board overseeing Idaho’s retiree benefit program won’t be raising the cost of living adjustment more than the standard 1%, which board members and the director say is prudent to protect the program — but a state lawmaker is arguing this increase won’t begin to keep up with inflation.

The Public Employee Retirement System of Idaho, known as PERSI, has often been lauded as a recruitment and retention tool. Rep. John Gannon, D-Boise, urged the board in a letter to implement a higher discretionary cost of living adjustment, known as a COLA.

“Retirees are being hammered in the Treasure Valley by inflation,” Gannon said after the PERSI meeting Tuesday. “And most states are giving better COLAs than Idaho.”

If the board doesn’t take any action, the COLA will automatically be 1%. On Tuesday, the board chose not to make a change.

“Would it be great to give these all the time? I think all of us would love to,” board member Joy Fisher said of the cost of living increase. “But we can’t afford it.”

PERSI Executive Director Don Drum thinks the board is making the right choice. The contribution rate to the program has the mandatory 1% annual increase built into it; other increases may require increased contribution rates from employers. In addition to state agencies, cities, counties and other local government entities may opt into it if they choose. There are around 850 employers in PERSI, Drum said.

Last year, the employer contribution rate was raised and, typically, the board hasn’t also increased the COLA when contribution rates are also being raised, Drum said.

Fisher said the state’s program was still “digging out of a hole” from negative returns from previous years as well.

“It’s not just that year’s investment return, you have to look at the whole picture,” Fisher said.

Drum also noted that increasing the contribution rates could mean employers would pull out of the program. Local governments that opted in have the option to withdraw if they choose; right now, every county in Idaho and the majority of cities with populations over around 2,000 are in the program, Drum said.

“If we have employers begin to withdraw from PERSI, that’s going to be a problem,” Drum said. “So we have to really watch these rates.”

The discretionary increase is getting more and more difficult to fund, he said. A 1% increase costs around $130 million, and in 2000 it was $20 million, he said.

He said it’s been common practice to give larger increases to try to make up the lost COLA increases after years where no discretionary increase was provided. For instance, in 2019 the board approved a 5.5% COLA to restore the lack of gains from 2011, 2012, 2013 and 2018.

Tuesday marked Drum’s last board meeting as executive director, a title he has held since 2008.

“I’m saying this as a retiree, not as the ED — protect that benefit,” he said. “That is the most important thing for us PERSI retirees. Give the discretionary COLAs when you can afford to do it without jeopardizing the benefit.”

Gannon questioned this, asking why other states are able to afford COLA increases of closer to 3%. The consumer price index over the last year, ending in October, increased 3.2%, according to the Bureau of Labor Statistics. Gannon pointed to some states that have higher automatic COLA increases to their retirement plans or use the consumer price index.

For example, Utah’s is based on the CPI up to 3% for most beneficiaries, as of the state’s rules made in 2013, according to the National Association of State Retirement Administrators. In Arkansas, the increase is automatically the lesser of 3% or the urban CPI.

Gannon said he plans to bring up the COLA issue again at the Change in Employee Compensation Committee meeting on Dec. 12. He said the issues connect because sometimes lower state wages are justified because of the added benefit of PERSI.

“An argument has often been made that state workers in particular make less than the market pay rate but receive good health insurance and quality retirement,” Gannon wrote to the PERSI board members. “This promise of quality retirement is being broken when retirees essentially have a 10.7 percent pay cut. Our already difficult retention and recruitment problem will be affected.”

Guido covers Idaho politics for the Lewiston Tribune, Moscow-Pullman Daily News and Idaho Press of Nampa. She may be contacted at lguido@idahopress.com and can be found on Twitter @EyeOnBoiseGuido.